Google (Nasdaq: GOOG) wasn't able to meet profit expectations for the quarter, and as a result the stock took a pummeling after net profit grew at only at 35 percent.
After employee-related stock compensation costs, the company profit was $4.63 a share, down from the expected $4.72 average of Wall Street Analysts.
Quarterly earnings grew to $1.25 billion, up from the $925.1 million, or $2.93 a share during the same quarter last year.
Gross revenue reached $5.37 billion, meeting analyst estimates that ranged from $5.16 billion to $5.62 billion.
Trying to placate shareholders, Google executives said on the conference call that lower earnings weren't connected to the health of its online advertising business or the economy. Instead, they insisted it was various strategies to manage cash that resulted in the earnings drop.
That may be true from its owned and operated businesses, but for its partners it's not true, as they were one of the major drags on margins, as revenue for them slowed down, accounting for only 31 percent of company revenue.
One of the major challenges facing Google is its expansion into international markets, which now accounts for 52 percent of revenue this quarter. Google had to spend more in the quarter for hedging its foreign currency exposure, another significant factor in rising expenses and lower margins.
The company expanded its international online ads in response to the slower ad market in the U.S.
Income from its cash holdings also declined as yields on its holdings declined, while it prepares for what it expects will be higher interest rates in the near future.
A one-off expense was the acquisition of DoubleClick.
Even though the company says they're not being affected by the economy and online advertising slowdown, they really are because of the exposure they receive from their online partners. It's all part of their company results, and so definitely matters.
This is probably just the beginning of slowing growth for the company, as there isn't much in the short term that looks like it'll change anything that will make a difference to them or their performance.
It's not the end of the world in any way for them, but it does show that it has some exposure to risk, and now have to learn how to manage it in a way they've never had to in the past.
In after hours trading, Google stock had plunged by 7.56 percent as of about 7:15 p.m. EST. It stood at 493.12, down by 40.32 from its close of 533.44.
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